What To Do Now If You Have Student Loans

The CARES Act student loan relief ends on December 31, 2020. What does this mean for borrowers? What are your options now?
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What to know about the CARES Act

If you or a loved one has been relying on the Coronavirus Aid, Relief, and Economic Security (CARES) Act to relieve student loan costs, the last few months have been a rare silver lining during a particularly difficult time. The CARES Act paused all payments for the vast majority of federal student loans and set interest rates at 0%, so interest would not accrue on these loans.

While much of that relief was set to expire on September 30, an executive order signed on August 8th will extend the deferral of federal student loan payments and interest accrual through the end of 2020.

What happens on December 31, 2020?
The short answer is: Everything goes back the way it was before the pandemic: All deferments and forbearances on federal student loans will end. The interest rate will be restored and payments will be due again. That includes any wage garnishing and collection practices.

For an up-to-date overview of current forgiveness and payment protection options, visit the Consumer Financial Protection Bureau (CFPB) at consumerfinance.gov. 

Does the new executive order forgive student loans?
The executive order does not include student loan forgiveness, though many legislators were hoping such a provision would be included. For those pursuing Public Service Loan Forgiveness, the months of non-payment prior to September 30 will count toward the 120 payments needed to qualify for PSLF as long as you’re working full-time for an eligible employer. It is not yet clear if the new memorandum applies to borrowers pursuing PSLF, so contact your servicer to find out if the additional months of forbearance will be counted. 

Should you keep making your payments?
For many borrowers, deferring payments will be a welcome and necessary strategy. The downside is that the debt isn’t going anywhere, and deferment only delays the inevitable. For those who can afford to continue payments this is a good time to do so. With 0% interest, the entire payment will go toward the principal, meaning you could pay your loan down much faster.

What if you cannot make your payments?
Federal student loan holders can enroll in an income-driven repayment plan based on income and family size. In some cases, this can move your repayment out for up to six months or more. Those with private student loans may also have options, including forbearance of interest and/or payments. 

Some private lenders offer payment reduction or deferral plans, but practices and options vary by lender and state laws. Be sure to contact your lender to discuss your options. 

Refinancing your student loans might be a good option
You may be able to benefit from refinancing your loans with a private lender. Depending on the type of student loan you have, refinancing could help you save money in overall interest payments. Just be sure to talk through with a trusted financial advisor to weigh the benefits of a refinance against benefits of your current loan. Refinancing a federal student loan could disqualify you from some forbearance and hardship programs usually in place for extraordinary events such as the current pandemic.